At a deposition this week, Emergency Manager Kevyn Orr testified that he had his attorneys draft a complaint against Bank of America and UBS charging them with fraud, unjust enrichment and breach of contract among other counts in connection with placing the City of Detroit in interest rate swaps that have cost the city hundreds of millions of dollars since 2006. He said he spoke with the Securities and Exchange Commission about enlisting their aid in investigating these charges. The SEC has brought many similar complaints against the banks for misconduct in the municipal bond market.

Orr testified that he believed the city’s potential in succeeding in this complaint, which could recover up to $500 million from these banks, was 50-50.

Pursuing this complaint against the banks would net real revenue to rebuild Detroit’s neighborhoods which were destroyed by approximately 100,000 foreclosures resulting from the predatory lending practices of the banks.

Incredibly, instead of pursuing this complaint, this week Emergency Manager Orr is going to the bankruptcy court to seek approval of a “deal” that was negotiated last week to pay Bank of America and UBS $165 million plus $4million in breakage costs to terminate the interest rate swaps which have already netted the banks about $300 million in profit. He will also seek approval of a loan from Barclays at interest rates up 8.5% to pay this $165 million to UBS and Bank of America, secured by a $48 million per year lien on city income tax revenues for the next 4 years, which amounts to about 20% of all income taxes collected.

Rather than going after the banks to make them repay the city for the destruction they have caused, Emergency Manager Orr is opting to allow the banks to continue their stranglehold over Detroit’s finances, ensuring that services, jobs and pensions will continue to be slashed.

Join us in front of the Federal Courthouse downtown when the trial on the swaps agreement resumes on Friday morning January 3. We will gather at 8:30 a.m. for a mass demonstration demanding that the illegal bank debt be cancelled and the democratic rights of the people of Detroit be immediately restored. Demonstrations in solidarity with the people of Detroit are also being held in New York City, Baltimore, Raleigh, NC and Oakland, CA.

We are also encouraging people to pack the courtroom of Judge Rhodes at 9:00 a.m. in federal bankruptcy court. Only the workers, retirees and community residents of Detroit can reverse the current crisis.

ISDA Master Agreement

The ISDA master agreement is the most commonly used master contract for OTC derivative transactions internationally. It is used to govern many of the financial transactions between the City of Detroit and Wall Street. Below are links to the agreement and sites with explanations.